Is Your Health Insurance Plan Fully Insured or Fully Deferred?

What do you think of when you hear the term "fully insured", are you thinking risky or not risky? Your probably thinking not risky. It's a term you hear and you think you can wash your hands of and walk away from it and ignore it for 12 months.

The phrase "fully insured" may be one of the greatest marketing campaigns ever designed in health insurance. If you are a buyer of health insurance do you want to be only "slightly insured" or would you rather be "fully insured". Most would agree that "fully insured" just sounds better.

Here at The Bachan Group LLC we like to use the term "deferred NOT insured"

Let's talk about the math of a fully insured plan and explain how a renewal is calculated to better illustrate our point.

Employer A has $500,000 in claims during the plan year. For the renewal, the underwriter will take the existing claims data and project towards next years expected claims costs PLUS industry wide medical inflation, Rx inflation and Administrative costs. Lets' say that medical inflation is 10%. So for next year the expected claims would be $550,000 plus RX inflation and administrative costs. Lets say Administrative costs are $150,000 which puts you at $700,000. Your renewal increase would be the difference between $700,000 and what your paying today. WHAT THAT REALLY MEANS IS NEXT YEARS PREMIUMS ARE ALWAYS DETERMINED BY THIS YEARS CLAIMS.

If you have a bad claims year and instead of $500,000 in small claims which might have led to a 10 or 15% increase you end up having $1,000,0000 in claims what would your increase look like? In this case the carrier will try to buffer out your claims experience by counter balancing it with other employers in the carriers block of business. Even with this tactic its not uncommon to see 40%, 50% and 65% + increases.

The problem is your paying your "fully insured" premium but the reality is the carrier gets to adjust it to actual based on what my claims were during that period, which all the sudden doesn't sound very "full" or "fully Insured".

What happens if you have lower than expected claims, can you expect a premium decrease? No, typically the best you can do is a rate pass, or they will invite you out to a nice event or dinner. Also in a low claims year the carrier could be willing to negotiate the initial proposed increase down. I'm sure you have seen this before. You start out with a 12% proposed increase but the broker negotiates it down to 5% or 6%. This has to prompt the question' if my carrier was willing to cut the proposed increase by 50% why didn't they just start with a 6% proposed increase in the first place? And now how can you be sure that the negotiated 6% is even the true lowest number? Would the carrier have taken 2 or 3%?

In "fully insured" health plans, employers don't have "full" insurance in the sense that if they have bad claims during the year they will still get a bill for it in the form of a renewal increase. And that's why we refer to it as "deferred NOT insured". There's no running from your smaller predictable claims, as an employer your going to end up paying them, but on a deferred basis.

Are you ready to do something different?

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